Housing Purchase Power Parity: Edmonton

In the early 20th century, a Swedish economist helped develop what is known today as Purchase Power Parity (PPP). This theory measures goods across different currencies, factoring in the exchange rate, to determine the value (over or under) of those particular goods. In the latter part of the 20th century, the publication “The Economist” developed their own version of this theory. Their index measured the price of Big Mac Sandwiches in numerous countries to determine the value of those international currencies against the exchange rate. If the measurement taken is lower, then the first currency is under-valued. If the measurement is higher, then the first currency is over-valued. This was known as the Big Mac Index1.

Well, here at Ratehub.ca, we’ve developed our own little economic theory which we’ve aptly named, the “RH Index”. We’ll use our theory to determine the value of housing markets across Canada measured against the common home. Instead of the price of Big Mac hamburgers, we’ll use the pricing of two-story, centrally-located, three-bedroom, two bathroom homes.

The next city on our list is Edmonton, Alberta – which has seen market stabilization in sales and resale home prices this past year. The average Edmonton MLS residential resale price rose by 2.6% in 2010, but has fallen by that same mark within the first three months of 2011, but CMHC is forecasting a moderate upswing in home prices by the end of 2011, and into next year2.

MLS®: E3271304, $289,000

Notes

This is actually over a hundred years old! It was built in 1910, meaning this home pre-dates both World Wars.

Calculations

The rates are quite favourable in Alberta right now. A quick comparison of the best Edmonton mortgage rates, reveal a low interest rate of 3.09%. This translates to monthly mortgage payments of $1,105. And since there is barely any Land Transfer Tax in Edmonton, the fee is only $93.

*5-year fixed rate over a 25-year amortization with 20% down payment, as of August 11, 2011

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